By Bart S. Foreman, president and co-managing partner, Group 3 Marketing

Retailers now have to deal with many more touchpoints and channels than they did just five years ago. While this creates more opportunities to reach customers, it also makes it easier for them to defect, increasing the pressure on marketers to build relationships that last.

The constant evolution of the marketing process further complicates the matter. Dynamic and integrated touchpoints and channels (virtual and real) are re-defining how we reach customers. There are no longer any walls; we are all interconnected through intranets and the Internet. And speed is measured in broadband width, not miles per hour.

Lifetime value (LTV) models - once an important component of marketing - are an expectation of future revenue based on past performance and a series of "what if" formulas. However, in today's environment, we're finding that by the time a question is asked, often the relevant factors have changed and the model is waiting for a new set of variables.

LTV models are outdated because it's difficult to focus on speeding bullets. They were not designed to interact with the dynamic technologies and marketing innovations that now directly impact every marketing decision.

A constantly evolving business environment

Retailing began with bricks, then clicks, and then bricks and clicks. Today, everyone is wireless, interactive and virtual. Previously, companies spoke of never-satisfied consumers; then they became never-satisfied, real-time consumers.

Today, it's the customer who controls the selling process - oftentimes, by the click of a mouse. Although there are numerous ways companies can influence real-time buying decisions, a better price, better service or a wider selection could be just a keystroke away. This makes customers less committed, not to mention completely undermines the LTV model.

Despite the crashes of so many start-up dot-coms, how many customers has Merrill Lynch lost to e-Trade; Sam Goody to CD NOW; Hallmark to Yahoo; travel agencies to Expedia, Orbitz and Priceline? Need a new or slightly used computer? Forget Best Buy and Circuit City; visit the world's largest garage sale at e-Bay.com where the choices are always changing.

So, savvy marketers have to create relationships that last. To do this, a marketer must measure each customer's dynamics - including demographics, lifestyles and purchasing history. The critical dynamic is not lifetime value, but where customers are in their lifecycles of buying. And most important, the marketer must know when customers have defected and initiate actions to regain them.

New marketing models for a new marketing environment

Many marketers believe retention is the hardest part of marketing. I disagree. If relationships with customers are built through a database-driven, marketing-focused initiative, marketers can reward patronage; they can recognize and thank loyal customers while communicating value and reasons for the next sale.

New marketing models are focusing on forging relationships with customers based on a growth scenario of building share of wallet, not share of market. It begins by making every touchpoint a positive experience through exemplary service, timely and meaningful communications and rewards that are easy to understand and use. It demands a customer-centric, enterprise-wide, management-led campaign that is as close to real time as technology and budgets allow.

It is important to consider whose lifetime value should be measured. Traditionally, marketers have measured the customer's lifetime value to the company. Maybe it would be better to turn the model around and measure the company's lifetime value to the customer.

If defections are a problem in a company, the lifetime value to its customers isn't very high. Management's challenge in today's real-time global economy is to maximize the company's current value to each of its customers based on where each is in their buying lifecycle. This requires understanding where customers are in their buying lifecycle through an "eyes open" focus that incorporates the following steps:

(1) Knowing your customers is not enough. You have to understand them - intimately. The first step is to create a database of known customers that includes demographics, as well as buying habits and patterns. Almost every company can do this with today's technology. Build a box and then discard the walls, because canned programs don't work.

(2) Once the database is created, employ direct marketing tactics to reward and communicate with customers while tracking their buying behavior patterns. Then, through a variety of reporting models, look for changes. Shifts in buying patterns should not be taken lightly. Remember the scientists who spotted the first El Nino pattern shifts in water temperature a few years ago and ignored the changes because they believed their instruments were faulty? Don't make the same costly mistake.

(3) Because all customers are not the same, it is important to group them into volume deciles to identify changes. It is easier to work with ten clusters of customers ranked in order of sales importance than with one homogeneous group. Clusters exhibit different buying patterns representing where customers in the cluster may be in their lifecycles with your company. Further segmentation - utilizing known demographics coupled with recency and frequency information - may help build a very accurate picture of customers in varying lifecycle stages.

(4) Survey customers who have been identified through database tracking to get a better understanding of the reasons for buying pattern shifts. Regional shifts, age shifts, gender shifts can all be identified and quickly targeted. An Internet questionnaire can be constructed and executed in a matter of days at virtually no cost. Response time is phenomenal and typically delivers about a 20-percent return.

Implement an 'eyes open' approach

The strategy of employing a database driven, relationship-marketing focus applies to all business segments. Retailers and service providers have the most direct access to end customers, but B-to-B and B-to-B-to-C companies also can employ these strategies.

For example, a company that specializes in selling computer parts and refurbished systems put hundreds of items on eBay. Orders came into the company, but before a new system captured and tracked the source, management had no way to (1) know where the customer was in the buying life-cycle and (2) no way to influence repeat purchases.

Through new reporting techniques, the company now utilizes their new database to identify and understand their customers, and to market back to them with the goal of transforming future purchases directly from the company. Following each purchase, "thank you" letters are now sent to invite new customers to visit the company's Web site for product information and availability and to join the company's e-mail list for periodic updates. If the customer bought a part, they are profiled for an upgrade to a system. If they purchased a system, they are profiled for upgrades and parts. Additional sales allow for enhanced profiling.

This type of "eyes open" strategy revolutionizes the concept of lifetime value, using database and direct marketing tactics to turn "customers for the moment" into "customers for life."

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